China is hoarding crude at the fastest pace in at least a
decade, shielding itself from supply disruptions and helping keep prices above
$100 a barrel.
The country imported a record
volume in April as it emulates steps taken by the U.S. in the 1970s to create a
strategic petroleum reserve, government data show. Chinese President Xi Jinping
is building stockpiles as his nation clashes with Vietnam over resources in the
South China Sea and faces potential risks to oil sales from Russia, Africa and
the Middle East because of sanctions and violence.
The purchases are helping drive
oil prices higher, according to Barclays Plc, Citigroup Inc. and Nomura
Holdings Inc. As China’s thirst for crude grows with the expansion of its
emergency stockpiles and refining, the International Energy Agency estimates
that the Asian nation is poised to surpass the U.S. as the world’s largest oil
consumer by 2030.
“This panicked stockpiling is one
of the ways that geopolitical tensions can actually tighten physical oil
markets,” Seth Kleinman, a London-based analyst at Citigroup, said yesterday by
e-mail. “This buying spree is partly driven by the infrastructure needs of
China’s ongoing refinery expansion, but also reflects the rise in geopolitical
tensions.”
West Texas Intermediate crude, the
U.S. benchmark, gained 9.5 percent over the past year to $104.40 a barrel on
the New York Mercantile Exchange. Brent, the marker for more than half the
world’s oil, climbed 6.9 percent on the London-based ICE Futures Europe
exchange to $109.95.
Significant Rise
China bought more than 600,000
barrels a day of surplus crude from January to April, a record for that time of
the year based on data compiled by Bloomberg from Chinese statistics tracked
since 2004. The surplus supplies are calculated by subtracting refinery runs
from the combined total of net imports and domestic production.
The imports suggest a
“significant” rise in commercial and emergency stockpiles, according to the
IEA, an adviser to 29 of the most industrialized nations on energy policy.
The buying “would benefit energy
security not just in China but globally and crude imports of that scale might
also support oil markets and keep commercial stocks from rising further
elsewhere,” the Paris-based agency said in its monthly market report released
May 15.
China doesn’t announce when it
fills the emergency reserve and stockpile totals are not made public.
Black Box
“There’s no official record,” Shi
Qi, an analyst with CEBM Group, said by phone May 23. “Actual filling progress
of China’s strategic oil reserves is in a black box.”
The official website of China’s
Center for Oil Reserves has a two-paragraph description of the office, a branch
of the National Energy Administration, though no information about the level of
the reserves themselves.
A spokesman for the National
Development and Reform Commission, the country’s top planning agency, declined
to comment when contacted today by phone. He asked not to be identified because
of internal policy.
The world’s second-largest
economy, which gets more than half of its crude from overseas, plans to build
emergency reserves equivalent to 100 days of net imports by 2020, China
Petrochemical Corp., the nation’s top refiner, said in 2009, citing the plan
approved by the State Council.
That volume is equal to more than
680 million barrels based on April’s customs figures, compared with the
equivalent of 349 million in 2008.
Three Phases
According to the U.S. Energy
Information Administration, officials decided in China’s 10th Five-Year Plan,
which covered 2000 to 2005, to establish a government-administered strategic
oil reserve to help shield the nation from potential supply disruptions.
The country had 141 million
barrels of strategic reserve capacity at the end of last year, China National
Petroleum Corp., the nation’s top energy producer, said in an annual report
released in January. China finished building four sites in 2009 that can hold
about 103 million barrels under the first of three phases of the reserve plans.
Two of seven sites in the 191
million-barrel second phase were completed by the end of last year and
construction has begun on two of the three sites for the third phase, according
to CNPC.
Potential Disruptions
“We expect prices to strengthen
slightly going forward due to continued supply shortfalls and geopolitical
tensions, and continued Chinese buying would help tighten the market as well,”
Sijin Cheng, a commodities analyst at Barclays in Singapore, said in an e-mail
on May 30.
Crude production from the Middle
East and North Africa has been curtailed by a battle for political control in
Libya, pipeline attacks in Iraq and prolonged sanctions against Iran. Russia’s
conflict with Ukraine has also stoked fears of a disruption of supplies from
the world’s largest energy exporter.
Culled from Bloomberg.com
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